Friday, April 28, 2017

Will Trump’s Tax Plan Turn ‘Everyone and Their Dog’ Into an LLC?

Under the headline, "Trump’s Tax Plan Could Turn ‘Everyone and Their Dog’ Into an LLC," David Kocieniewski writes at Bloomberg:

The Trump administration’s proposal to slash the tax rate on partnerships and limited liability companies could set off a stampede of individual taxpayers trying to reclassify themselves as so-called pass-through businesses in order to take advantage of the savings, according to tax experts.

He is correct. It would drive many taxpayers to try to reclassify themselves as pass-through entities since Treasury Secretary Steve Mnuchin said at Wednesday's briefing on Trump's tax reform proposal that pass-troughs would be taxed at the 15% corporate rate.

So a high net individual would try and push as much of his earned income into a pass through with the 15% tax rate versus a personal tax rate as high as 30% plus.

But a Treasury official I spoke to called Mnuchin's comment a "Trump tax fart."

Muchin and Director of the National Economic Council Gary Cohn were ill prepared for the briefing they held in the tax reform. It was in response to a Trump comment just a couple of days earlier that a tax reform plan was going to be announced. They rushed to put something together and they weren't fully prepared.

Mnuchin and Cohn kept the briefing as thin on details as possible becasue they didn't have any and didn't want to step on any land mines.

But Mnuchin did "fart" with his pass-through comment.

Bottom line: According to my man at T, the idea of a pass-through rate of 15% for all pass through entities is already gone with the wind.